Wednesday, December 31, 2014

The U.S. Court of Appeals for the Seventh Circuit recently held that a lender’s decision to decline a loan to prospective borrowers on the basis of their failure to provide information pertaining to their Social Security disability benefits was proper, holding that the borrowers failed to allege that they were treated differently than other applicants for loans.

In so ruling, the Seventh Circuit rejected the borrowers’ contentions that the bank’s demand for Social Security disability benefits information violated the Fair Housing act, the Americans with Disabilities Act, and the Rehabilitation Act.

The prospective borrowers (“borrowers”) applied for a purchase-money mortgage loan that would be repaid through the disability benefits they receive from the Social Security Administration. The lender asked the borrowers for information from their physicians, or the Social Security Administration, to verify that the benefits would last for at least three years.

After the borrowers failed to provide the requested information, the lender declined to make the loan. An administrative complaint and negotiations followed, but by the time the lender decided to advance the money, the owner of the subject property had pulled out of the prospective transaction.

The borrowers brought suit against the lender, alleging that the lender’s demand for information violated the Fair Housing Act, the Americans with Disabilities Act, and the Rehabilitation Act. The district court eventually dismissed the suit on the pleadings, ruling that the borrowers had not set forth a plausible complaint of discrimination.

As you may recall, section 805(a) of the Fair Housing Act, 42 U.S.C. §3605(a), makes it unlawful for anyone in the residential real-estate business "to discriminate against any person in making available such a transaction ... because of ... handicap". Additionally, the Rehabilitation Act, 29 U.S.C. §794, says that "[n]o otherwise qualified individual with a disability ... shall, solely by reason of her or his disability, be excluded from the participation in ... or be subjected to discrimination under any program or activity receiving Federal financial assistance". Similarly, Title III of the Americans with Disabilities Act, 42 U.S.C. §12182(a) provides that "[n]o individual shall be discriminated against on the basis of disability in the full and equal enjoyment of" places of public accommodation.

The Court noted that none of these statutes expressly forbids asking applicants for information that will be used to apply the same standards that govern non-disabled persons.

The borrowers argued that that the lender’s request for either the nature of the disability or probability that the paying agency will continue the benefits was improper under the aforementioned federal statutes.

The Seventh Circuit held that, although it does not take much to allege discrimination, see Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002); Swanson v. Citibank, N.A., 614 F.3d 400 (7th Cir. 2010), one essential allegation is that someone else has been treated differently.

In order to determine whether the lender unlawfully discriminated against the borrowers in the instant matter, the Appellate Court looked to the lender’s policies and procedures, and found that the lender apparently asks everyone who applies for a loan to provide good reason for it to think that the applicant’s current income will continue.

Moreover, review of the lender’s operation manuals and documents received by the lender from several federal agencies indicated that the lender was advised to collect information from any applicant who relies on governmental-assistance programs for repayment. See HUD Handbook 4155.1 §§ 4.D.1.a, 4.D.2.k, 4.E.3.c.

Here, the Seventh Circuit held that the borrowers did not sufficiently allege that they had been treated worse than other applicants for loans. In so ruling, the Seventh Circuit held that none of the federal statutes cited by the borrowers forbids asking applicants for information that will be used to apply the same standards that govern non-disabled persons.

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Ralph Wutscher's practice focuses primarily on representing depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, distressed asset buyers and sellers, loss mitigation companies, automobile and other personal property secured lenders and finance companies, credit card and other unsecured lenders, and other consumer financial services providers. He represents the consumer lending industry as a litigator, and as regulatory compliance counsel.

Ralph has substantial experience in defending private consumer finance lawsuits, including cases ranging from large interstate putative class actions to localized single-asset cases, as well as in responding to regulatory investigations and other governmental proceedings. His litigation successes include not only victories at the trial court level, but also on appeal, and in various jurisdictions. He has successfully defended numerous putative class actions asserting violations of a wide range of federal and state consumer protection statutes. He is frequently consulted to assist other law firms in developing or improving litigation strategies in cases filed around the country.

Ralph also has substantial experience in counseling clients regarding their compliance with federal laws, and with state and local laws primarily of the Midwestern United States. For example, he regularly provides assistance in connection with portfolio or program audits, consumer lending disclosure issues, the design and implementation of marketing and advertising campaigns, licensing and reporting issues, compliance with usury laws and other limitations on pricing, compliance with state and local “predatory lending” laws, drafting or obtaining opinion letters on a single- or multi-state basis, interstate branching and loan production office licensing, evaluations and modifications of new or existing products and procedures, debt collection and servicing practices, proper methods of responding to consumer inquiries and furnishing consumer information, as well as proposed or existing arrangements with settlement service providers and other vendors, and the implementation of procedural or other operational changes following developments in the law.

Ralph is a member of the Governing Committee of the Conference on Consumer Finance Law. He is also the immediate past Chair of the Preemption and Federalism Subcommittee for the ABA's Consumer Financial Services Committee. He served on the Law Committee for the former National Home Equity Mortgage Association, and completed two terms as Co-Chair of the Consumer Credit Committee of the Chicago Bar Association.

Ralph received his Juris Doctor from the University of Illinois College of Law, and his undergraduate degree from the University of California at Los Angeles (UCLA). He is a member of the national Mortgage Bankers Association, the American Bankers Association, the Conference on Consumer Finance Law, DBA International, the ACA International Members Attorney Program, as well as the American and Chicago Bar Associations.

Ralph is admitted to practice in Illinois, as well as in the United States Court of Appeals for the Seventh Circuit, the United States District Courts for the Northern and Southern Districts of Illinois, and the United States District Court for the Eastern District of Wisconsin, and has been admitted pro hac vice in various jurisdictions around the country.